Japan govt approves $156 bln quake budget plan
* Quake-related spending Y9.1 trln, including over Y1 trln FX aid
* To issue reconstruction bonds over 5 yrs, redeem by 2022/23
* Y9.2 trln tax hikes, Y7 trln non-tax revenue eyed over 10 yrs
* Govt willing to modify plans to get wary opposition's support
TOKYO, Oct 7 (Reuters) - Japan's government approved on Friday the outline of a $156 billion extra budget and a plan to raise taxes from next April to fund rebuilding from the March earthquake, both of which will require opposition backing to pass through a split parliament.
The ruling Democratic Party has begun talks with combative opposition parties that control the upper house to secure their support, aiming to submit bills later this month, but it could struggle to get support for key revenue provisions.
The 12 trillion yen ($156.45 billion) budget earmarks 9.1 trillion for disaster-related spending, including 6.1 trillion yen for reconstruction projects and more than 1 trillion yen for subsidies and other measures to help industry cope with the strong yen.
"We will continue discussions with ruling and opposition parties, and as a result, we could modify bills and take additional budgetary steps as needed," Finance Minister Jun Azumi told a news conference.
With a public debt twice the size of Japan's $5 trillion economy, the government faces a delicate balancing act to pay for its biggest reconstruction effort since the years after World War Two without choking off a fragile economic recovery.
Many in the ruling Democratic Ruling are keen to minimise tax hikes by squeezing as much revenue as possible from other sources, including selling government shares in Japan Post, which operates the postal system and Japan's biggest savings institution, and in the state-run tobacco monopoly.
But those share sales would require passing legislation that faces huge political hurdles, including likely stiff objections from the Liberal Democrats, the largest opposition party.
But Azumi reiterated the ruling party's eagerness to cash in on the government's Japan Post holdings to raise funds.
"If the Japan Post bills pass the parliament, which would enable us to sell two-thirds of the shares, we would be able to secure enough funds as we try to avoid a further (tax) burden," he said.
Tokyo plans total spending of 19 trillion yen over the next five years to rebuild the northeast coastal areas devastated by the March 11 disaster, including 6 trillion yen already passed by parliament in two extra budgets for the fiscal year to next March.
The bulk of the third extra budget would be funded by reconstruction bonds worth 11.4 trillion yen, which under the government plan would be issued over a five-year period and redeemed by the fiscal year to March 2023.
Plans also call for 9.2 trillion yen in tax hikes over a 10-year period, with the proceeds to be used to redeem the bonds.
To limit the tax burden, the government aims for non-tax revenue or revenue savings of 7 trillion yen over the 10-year period, in large part through spending cuts and sales of government shares in Japan Tobacco Inc and energy-related firms.
A Japan Post sale would allow it to top up the non-tax portion and further hold down unpopular tax hikes.
But the opposition Liberal Democrats' commitment to a Japan Post reform law passed when they were in power, as well as their ties to the tobacco industry, are among the formidable obstacles to legislative changes needed for those share sales.
Some government officials have also said it would be hard to sell all the government's holdings in energy-related firms, including Inpex Corp and Japan Petroleum Exploration Co (Japex) , due to concerns about energy security.
The government's plans include a corporate tax hike for three years from next April, as well as a 10-year hike in the tobacco tax from October 2012 and in the personal income tax from January 2013.